Wipro to buy Canadian firm Atco’s IT services business for $195 mn

Wipro to buy Canadian firm Atco’s IT services business for $195 mn

Bangalore: India’s third largest software services exporter Wipro Ltd has agreed to buy information technology (IT) services business of Canadian logistics and utilities firm Atco Ltd for $195 million, as the Bangalore-based firm looks to expand and strengthen its presence in Canada and boost its natural gas business.

The deal, which comes less than a year since Wipro bought US-based Opus Capital Markets Consultants Llc for $75 million, is one of the company’s largest acquisitions in recent years, and comes bundled with a 10-year, $1.1-billion outsourcing contract with Atco.

The outsourcing contract—one of the largest ever for Wipro—is expected to result in an annual revenue of about $112 million and comes at a time when Wipro is struggling to keep pace with larger rivals such as Tata Consultancy Services Ltd and Infosys Ltd.

Shares of Wipro rose as much as 3.1% in morning trade on Friday to Rs.554.70 apiece after the announcement.

“Our focus will be to enable Atco to enhance their competitiveness by deployment of strategic solutions and efficient delivery of IT services,” said Anand Padmanabhan, CEO of Wipro’s energy, natural resources and utilities business. “We have traditionally had a strong position in the utilities space in Europe and this engagement provides momentum to our business in Canada and Australia. The alliance with Atco enhances our capability to create, nurture and tap local talent to power our growth journey in Canada.”

The deal fits into Wipro’s long-standing “string of pearls” acquisition strategy of making modest investments in acquiring companies that can add to its own abilities or provide access to a market.

The deal is also another example of how top Indian IT firms have over the years bought captive IT units of large customer organizations and gained access to large outsourcing contracts in the process. In 2008, Wipro bought the IT arm of Citigroup in India for $127 million that gave it access to a $1 billion outsourcing contract from the company.

In the same year, TCS bought India-based captive unit of Citigroup Global Services Ltd for $505 million that unlocked a massive 10-year outsourcing contract of about $2.5 billion.

The energy and natural resources business has easily been Wipro’s fastest growing business division over the past two-three years, at a time when the company has continued to lag larger rivals in the key banking and financial services sector that contributes nearly 30-40% to revenues for India’s $118-billion IT industry.

“This alliance ensures Atco can focus on growing our core businesses of structures and logistics, utilities, and energy while partnering with Wipro for strategic, innovative IT solutions required to support our global operations,” said Brian Bale, senior vice-president and chief financial officer of Atco. “Wipro’s deep domain capability and technology-leadership will also ensure we continue to deliver cost-effective services to our customers.”

Wipro also said that the acquisition of Atco I-Tek—Atco’s IT services business—would help strengthen the company’s IT services delivery in North America and Australia, given its presence in both the geographies.